Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Accounting by using this notes. If you are struggling with Financial Accounting use this not...
IAS 16 Property, plant and equipment
Definitions from last year – in Standard, do not study rather flag it
Definitions
Property, plant and equipment
TANGIBLE items that:
(a) Held for use in the production or supply of goods or services, for rental to others, or for
administration purposes; AND
(b) Are expected to be used during more than one period.
Cost
Amount of cash or cash equivalents paid OR
the fair value of the other consideration given to acquire an asset at the time of its acquisition or
construction OR
amount attributed to that asset when initially recognised in accordance with the specific requirements of
other IFRSs.
Recognition
IAS 16.7
IAS 16.8
Recognition criteria
Spare parts, stand-by equipment and servicing
• Probable that future economic benefits equipment → PPE if recognition criteria met
associated with item will flow to entity AND
Otherwise inventory
• Cost of item can be measured reliably.
Safety or environmental assets SUBSEQUENT EXPENDITURE IAS 16.13
and 14
→ recognise as PPE; review CA for impairment
Replacement parts and inspection costs
(IAS 16.11)
If replaced, old parts need to be derecognised
Capitalise
Borrowing cost for qualifying asset IAS 23.8
, Initial Measurement
What costs, according to the standard, will be included in the cost of an item of PPE at acquisition?
INCLUSIONS IAS 16.16 EXCLUSIONS IAS 16.19
(a) Purchase price Refundable purchase taxes
Import duties Trade discounts and rebates
Non-refundable purchase taxes
(a) Costs of opening new facility
(b) Any costs directly attributable to bringing (b) Cost of introducing new product
the asset to the location and condition (advertising and promotional costs)
necessary for it to be capable of operating (c) Costs of conducting business in new
in manner intended by management location
Examples of directly attributable costs: (costs of training staff)
• Costs of employee benefits concerning (d) Administration and general overhead costs
construction and acquisition of asset
• Cost of site preparation
• Initial delivery and handling costs
• Costs of testing if asset functions properly
AFTER deducting net proceeds made from selling
any items produced while bringing asset to location
and condition
• Professional fees
(c) Initial estimate of costs of dismantling and
removing the item and restoring the site on
which it is located, the obligation for which
an entity incurs either when item is acquired
or as consequence of having used the item
during a particular period for purposes other
than to produce inventories during that
period.
Assets with different components and assets that have to be inspected?
Components
Handle exactly the same as any other asset
Inspection
Entity may choose to depreciate separate parts of an asset separately. Each part has own useful life and
depreciation method. IAS 16.43
Components of assets need REPLACEMENT at regular intervals.
Include the replacement cost of component in the carrying amount of the asset (if recognition criteria is
met)
Borrowing costs on
specific funds =
Self-constructed assets
Actual borrowing cost
IAS 16.22
incurred – investment
Includes borrowing costs income on surplus funds
from date of commencement
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